The size of the private equity industry in India is a drop in the bucket compared with the global total, but recent growth has been rapid, and the future looks promising, a report says.

India’s private equity industry expanded rapidly in the decade from 2006, reaching a total of $24 billion at the end of last year, but that figure is still a drop in the ocean compared with the global total of $2.6 trillion.

Figures from Preqin, the research firm, show that after an expansion, growth in India’s private equity AuM slowed, falling slightly last year. 

Fundraising was relatively consistent in recent years, with around 20 India-based private equity funds raising between $1 billion and $3 billion annually. However, so far this year the number of India-based private equity funds closed has reached a record 24, securing a combined $2.9 billion. 

Reforms enacted by the Indian government, designed to encourage investment and development, are seen as boosts for private equity. The country is still a relatively highly regulated economy, however, and in the early stages of allowing the kind of restructuring that private equity buyout players can be associated with. In the past, it is argued, by groups such as consultants at McKinsey, that foreign private equity houses have over-estimated opportunities to make money in the country, leading to disappointing results. That report, issued in 2015, said: “Indian general partners are fishing in a small pond. In 2013, India had 10,440 companies with between $25 million and $500 million in revenue, excluding state-owned entities and publicly listed companies; China had 41,150 and Russia had 16,700.”

In its report, Preqin said the India private equity market may be set to expand further in 2018, as the number of funds coming to market and seeking capital from investors has accelerated in 2017. 2015 saw 48 India-based private equity funds in market: this rose to 74 funds in 2016, and 101 funds in 2017. 

More India-based investors are becoming active in private equity. In August 2017 Preqin tracked 81 active investors in the asset class, up from 79 in 2016 and 65 in 2015. The data showed that 97 per cent of these investors prefer venture capital funds, with 60 per cent seeking growth funds and just 18 per cent stating a preference for buyout vehicles. This is far below the average of 50 per cent of investors seeking buyout funds across the rest of the Asia-Pacific region.

“The private equity market in India has been expanding steadily for the past decade, as the economy develops and more fund managers and investors seek to take up the opportunities this presents. Although expansion has paused in 2016, this is largely due to distributions made to investors, and does not reflect a contraction of the overall market. In fact, fundraising has surged in 2017, with a record number of funds closed and high capital totals raised,” Christopher Elvin, head of private equity products, Preqin, said.